Nigeria needs N6.33trn to service debt stocks

The devaluation of the naira has put the real value of Nigeria’s debt stock at around N18.9 trillion, when considered at the official rate of N307.79 per dollar, according to figures from the Debt Management Office.

The additional naira stock (per dollar) that would be needed to service existing debt will cause the country to lose about N6.33 trillion, a near-equivalent of the 2016 budget, when compared to N12.6 trillion at N197 per dollar as at December 31, 2015. It is also a disincentive for future external borrowing despite a positive debt-to-GDP ratio.

The additional N6.33 trillion required to pay off Nigeria’s external debt represents 20.58 per cent, a one-fifth of its estimated $296 billion, or N91 trillion GDP.

The national debt stock consists of external obligations for both federal and state governments estimated at $11.3 billion (about N3.5 trillion); domestic obligations of $37.5 billion (about N11.5 trillion) and $12.7 billion (about N3.9 trillion) for federal and states respectively.

The debt report released by the Debt Management Office came two weeks behind schedule and put the debt stock by June 30, 2016 at $61.45 billion. The report stressed that the figure was higher in naira value than the $71.66 billion posted on March 31, 2016.

The amount, also at current official rate of N307.93 per dollar is higher than the estimated $65.43 billion debt worth N12.6 trillion as at December 31, 2015, at N197/$.

Already, the 2016 budget had a debt service provisioning in excess of N1.4 trillion, representing more than one-fifth of the entire budget plan. The combined forces of devaluation and inflation, also took toll on the nation’s economic activities between December 2014 and 2015, eroding naira value, as well as pushing the sovereign debt stock to N12.12 trillion.

Given the eroding value, Nigeria lost about N920 billion to devaluation, with respect to the debt stock, representing 8.2 per cent loss over the actual value in six months.

Still, the estimation of N920 billion loss appears to be conservative, given the fact that the domestic debts of sub-national governments (states) were denominated in dollar at the 2013 exchange rate of N155.7/$, which is not attainable now.
For example, if the states’ domestic debt profiles were denominated in current dollar exchange rate at N307.79, the total estimate would push losses far beyond N1 trillion mark.